01 Apr 2023
Base rate increases
I’d like to talk about base rate increases and how they have, or have not affected mortgage rates…
Most readers keep an eye on base rate announcements, so you wouldn’t have missed the Bank of England’s recent increase in rate from 4% to 4.25%.
The MPC voted 7-2 to increase interest rates, driven by the fact inflation is still not under control rising to 10.4%, well above the target rate of 2%.
Economists predicted rates would top out at 4.25%, although with inflationary pressures still circling, Barclays raised their prediction this week to 4.50%.
Despite these base rate increases, lenders use another rate to price their mortgages called Swap Rates.
The specific Swap Rate is known as the SONIA rate which replaced LIBOR. Without getting technical, it is the rate at which banks can borrow money and this is predicted into the future.
Put simply, when the five-year SONIA rate goes down, lenders tend to reduce their five-year fixed-rate mortgages.
Two-year fixed rates are currently being offered at a higher rate than five-year fixed rates. (This hasn’t been the case in my twenty years!)
Looking back, a year ago in March 2022 the five-year SONIA rates were at 1.86%, the five-year fixed rate at the time would have been circa 1.99%.
Residential mortgage rates are now being offered at around 3.99% fixed for five years. Lower than the base rate but slightly higher than the current five-year SONIA.
My point being - it’s not all about the base rate when taking a mortgage, book in to have a call with one of the team and let us help you run your numbers.